Pew Asks, 'Who Owns the Media?'

Article ImageIn a report summarizing "major changes" in news media ownership in the past year, the Pew Research Center's Project for Excellence in Journalism (PEJ) touched on a variety of topics, ranging from a busy year for newspaper transactions to the struggles of AOL's hyperlocal Patch websites.

Along with the report, which was published on June 26, PEJ launched a new interactive database, dubbed Who Owns the News Media, to help people "make sense of the changes at the highest levels." The database "provides detailed statistics on the companies that now own our nation's news media outlets, from newspapers to local television news stations to radio to digital."

A healthy percentage of the report was dedicated to the action-packed year in newspaper sales, as a total of 71 daily newspapers were sold as part of 11 different transactions during 2011, the busiest year for sales since 2007, says PEJ, citing the investment banking firm of Dirks, Van Essen & Murray.
The transactions continued in 2012. According to PEJ, Warren Buffett's Omaha, Neb.-based Berkshire Hathaway Co. gobbled up 63 newspapers, including 23 dailies, in May from the debt-ridden Media General Co., creating "a major new player in the industry." The newspaper purchases add yet another layer to an already diverse company, as Berkshire Hathaway's holdings also include GEICO Auto Insurance, Fruit of the Loom Cos., and Dairy Queen. It also made Berkshire Hathaway the No. 10 newspaper company in the U.S. in terms of total weekday circulation at 882,347 (No. 1 Gannett has a total weekday circulation of 4,859,360).

The flurry of paper sales activity seems odd at a time when most papers are distancing themselves from print and putting a heavier emphasis on digital.
However, PEJ director Tom Rosenstiel says there are "various reasons to buy papers-from the belief that they are undervalued long term to the desire to help a civic institution to wanting to be a public figure and civic player and more-to some combination of those if there is a consortium of owners."

The Buffett group's purchase was "seen as a rare vote of confidence in a struggling industry," says the PEJ report.

Was it a sign that companies with deep pockets now appear willing to take on the challenges of media companies, particularly newspapers? "No, not generally," observes news industry analyst Ken Doctor. "Berkshire Hathaway is different, given both Buffett's long history/belief in newspapers and its financial heft."

The Berkshire Hathaway purchase also capped a period of intense change in U.S. newspaper ownership, says PEJ. In the past 18 months, many better-known newspaper companies sold off "most or all of their holdings while a number of new entities, including hedge funds and private equity firms, jumped in," says PEJ.

For example, hedge fund company Alden Global Capital purchased the Journal Register Co. with 20 papers including the New Haven Register, the Oakland Press, and the Daily Times.

"Private equity companies are judiciously looking at possible buys, but are not on a buying spree," says Doctor. "Prices of properties are attractive, but buyers mostly realize they need a patient 3- to 5-year time horizon to see new profit stability."

Considering papers derive so much revenue from print ads, Rosenstiel doesn't think many of the newly purchased papers will become digital-only anytime soon.

"For now, given the proportion of revenue that comes from print advertising on Sundays and certain other days, and the lack of digital ad revenue and the relative infancy of online subscriptions, we see papers wanting to retain some level of print for some time," he says.

That may mean continuing print and home delivery 7 days a week for some, with or without online subscriptions; printing every day, but not offering home delivery every day for others; and moving to online only several days a week but retaining 2 or 3 of the most valuable home delivery print days for others, adds Rosenstiel.

"The size of the paper and the nature of the market all dictate which approach makes sense, and different companies are at different places on digital subscriptions. But in general, our research suggests that the papers that are faring best are those making a strong commitment to developing digital revenue, even if they are smaller papers where print advertising revenue is holding up better," says Rosenstiel.

By 2020, Doctor predicts, "We'll have a mainly weekly newsprint press-from community papers to the Sunday New York Times, digital filling out daily lives through the five screens of desktop/laptop, tablet, smartphone, connected TV, and connected car. If publishers could flip the switch today they'd do it--The Wall Street Journal digital subscription costs 83% of the print/digital price-but too much of the ad revenue is still in print. As soon as they can, publishers will flip it, though."

But acquisitions weren't the only thing on Pew's radar. Everything from local news to video partnerships to the rise of tablets was explored. Much of that focused on AOL's beleaguered Patch properties. This past May, Starboard Value, LP, a shareholder in AOL, of which Starboard Value owns 5.3%, "released a report sharply criticizing Patch, which included its estimates (AOL does not release earnings for Patch in any regular form) that the local news operation lost $147 million and generated just $13 million in ad revenue in 2011," according to PEJ. "AOL continues to defend its investment in Patch and in early 2012 revealed a new ad team that it hoped would boost ad sales," PEJ continues.

When it comes to making money, Rosenstiel notes that the kind of advertisers who might connect with a national online sales staff may not be the local advertisers "who fit in all cases with local content."

Interestingly, just as it seems everything has gone digital, sales of consumer magazines were up almost a quarter (23%) in 2011 compared to the previous year, according to the PEJ report.

What gives? The early data suggests that tablets and other mobile technology are helping magazines digitally, according to Rosenstiel: "Maybe that will remind people how much they like magazines and translate into some increased print sales. It also may be partly a cyclical gain, with the economy easing if not entirely recovering. I think we need to watch this further." No doubt the new owners of all those newspapers will be watching as well.